Zydus Wellness Ltd. BUY: Target: Rs 726 :SBI Caps

Zydus Wellness Ltd. (ZYWL), a subsidiary of Cadila Healthcare Ltd. is into manufacturing and marketing of niche
wellness products, having plants at Ahmadabad and Sikkim. It offers wellness products, combines best of healthcare,
nutrition and cosmeceuticals. All its products, viz., Sugar free, Nutralite, EverYuth and Actilife; cater to the evolving
needs brought about by change in lifestyle and surge in chronic diseases. Being an early entrant, with launch of
Sugar Free in 1988, it has successfully gained over 90% of the market share of an artificial sweetener.
Over half of its revenues have been contributed by Sugar Free and EverYuth, we expect these two products continue
to drive the revenues and Nutralite to provide some support to the overall margins as vegetable oil prices are cooling off. Between FY08 and FY13, ZYWL's revenue and net profit have
grown at a CAGR of 48% and 84%, respectively, due to its play on
the rising affluence in the country, increasing conscious about their
calories intake and rising number of diabetic patients. We expect to
mirror relatively similar growth, going ahead. We initiate coverage with
a target price of Rs.726 and BUY rating.

Zydus Wellness - “BUY” rating with a price target of Rs. 477 :Nirmal Bang

Technicals -Punj Lloyd, Sterling Biotech, Bajaj Auto, Zydus Wellness, Nakoda, Ganesh Housing :: Business Line

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Can I buy Punj Lloyd at current price? I can wait for three years from now on. Please advise.

Ramachandra

Punj Lloyd (Rs 55): Punj Lloyd is in the bear's stranglehold since January 2008. The stock hit a life-time low at Rs 37 in December 2011, and is currently in a nascent uptrend. This rally has not progressed sufficiently to infuse confidence.

The stock is likely to face resistance at Rs 77 and Rs 100 in the months ahead. The stock needs to move above Rs 100 to indicate that a sustainable medium-term uptrend is in progress.

Investors with a low risk-appetite can, therefore, wait for a strong weekly close above Rs 100 before buying the stock. The more adventurous can accumulate the stock at current levels with stop at Rs 40.

The stock faces strong long-term resistance at Rs 200 and then at Rs 250. It is quite likely that the stock vacillates in the range between Rs 50 and Rs 250 over the next couple of years.

Zydus Wellness : Target 650 :: Anand Rathi

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Zydus Wellness                                                      CMP  352                                                              Target  650

Investment Rationale

~ Concentrating on niche segments & attaining competitive position

~ Sub-segmentation strategy for major brands an advantage

~ Momentum in product launches

~ Expansion on distribution front going forward to boost revenue

~ Debt free company with good amount of cash and cash equivalents on books

~ Supportive industry scenario

Zydus Wellness, Q3FY12 – Sales decline continues, lower expenses expands margins • GEPL

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Q3FY12 – Sales decline continues, lower expenses expands margins
• Zydus Wellness reported net sales at `510 mn, down 43.8% Y-o-Y resulting from decline in
Everyouth brand due to intense competition.
• EBIDTA declined by 29.9% Y-o-Y at `199 mn. EBITDA margins expanded 808bps Y-o-Y to 39%.
• Ad Spends were `2 mn as against `6 mn in Q3FY11 and `132 mn in Q2FY12.
• Other expenditure and Staff cost declined by 52.6% (down 319bps) Y-o-Y and 29.9% (up 90bps)
Y-o-Y respectively in Q3FY12.
• PAT decreased by 4.7% Y-o-Y to `186 mn as against `196 mn in Q3FY11. PAT margins expanded
by 15% points Y-o-Y to 36.5% in Q3FY12 as against 12.5% in Q3FY11 resulting from lower
expenditure
Result Highlights
Sales decline continues
Sales growth reported decline of 44% Y-o-Y on the back of de-growth in Everyouth (face-washes and
scrubs) brand. Sugarfree and Nutralite have recorded single digit growth during the quarter. High
competitive intensity in the category has resulted in de-growth in Everyouth brand. Management is
confident about double digit growth as company resumes its brand campaign again in Q4FY12.
Margins expand as expenses declines
EBIDTA declined by 29.9% Y-o-Y at `199 mn. EBITDA margins expanded 808bps Y-o-Y to 39%. The
company has withdrawn its brand campaign / communication during the quarter due to very high
competition resulting very low return on ad spends. Ad Spends were `2 mn as against `6 mn in
Q3FY11 and `132 mn in Q2FY12. Other expenditure and Staff cost declined by 52.6 % (down
319bps) Y-o-Y and 29.9% (up 90bps) Y-o-Y respectively in Q3FY12. This resulted in EBITDA margin
expansion of 808bps to 39% in Q3FY12.
High other income boosted PAT growth
PAT decreased by 4.7% Y-o-Y to `186 mn as against `196 mn in Q3FY11. PAT margins expanded by
15% points Y-o-Y to 36.5% in Q3FY12 as against 12.5% in Q3FY11. Low tax rate (13.3% vs 33.2% in
Q3FY11) has helped to push up the PAT margins to 36.5%.
Valuation & Viewpoint
Though Zydus wellness has strong brands like Everyouth, Sugarfree and Nutralite in niche segments
on health and wellness platform. The recent decline in earnings is concern even though
management is confident of double digit growth rate with reintroduction of brand campaign in
Q4FY12.

Buy Zydus Wellness Management call: subdued FY12, long-term growth intact:: Anand Rathi

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High competitive pressure on the Everyuth brand, the cyclical
downturn in SugarFree’s revenues and higher raw material costs for
Nutralite have impacted Zydus Wellness’s performance over the past
two quarters. We, however, believe the strong long-term growth
potential is intact and view the correction in the stock price as an
attractive entry point. We maintain our Buy rating on the stock.
 Higher competitive pressure on Everyuth. Everyuth continues to see
high competitive pressures from MNCs. HUL has raised media spend on
the face-wash and scrub categories, which account for larger part of
Everyuth’s revenues. Pressure also comes from other players, such as
Garnier and Nivea. This results in lower revenue growth for Everyuth.
 SugarFree passing through a cyclical slow-growth patch.
Management indicated that the current slowdown in SugarFree’s revenues
is due to the four-quarter period of lower growth that SugarFree goes
through after every 3-4 years, and that structurally the brand has strong
long-term growth potential. Management also indicated that Zydus’
market leadership has risen from 84% a year ago to 89% now.
 Nutralite margins to fall due to higher palm oil prices. As 75% of
the Nutralite business is institutional and has lower pricing power, the
company expects to continue to suffer on the margin front as palm oil
prices continue to rule higher due to rupee depreciation.
 Excise duty to be lower from 2HFY13. As the company is required to
pay excise in Sikkim and then collect the refund from the Government in
the next year, the excise duty is likely to drop from the second year of
operations. We expect the lower excise duty to start from 2HFY13.
 Valuation. We value the stock at a DCF-based price target of `690. (Implied
target PE of 30x FY13e earnings.) Risk. Higher competitive pressure.

KIFS Result update of Zydus,BOC,BASF,Supreme Petrochem

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KIFS Result update of:

ZYDUS WELLNESS Q1 FY12

OVERVIEW

Zydus is engaged in the business of manufacturing and selling of all types of health food and wellness product. It combines the best of healthcare, nutrition and cosmeceuticals to bring to its users an array of the best wellness products to enrich its customers' life. Its products comprise Sugar Free, Nutralite and EverYuth. The Company also made its foray in neutraceuticals space by launching ActiLife, a nutritional milk additive for adults. The management is targeting revenue of Rs. 500 crores by 2013-14 by creating newer experiences through its products that nourish, nurture and energies the lives of the consumers.

Key highlights:

· Total income  grew marginally to Rs. 88 cr. v/s Rs. 87 cr in June-10

· Operating Profit grew by 24% Y-o-Y to Rs. 15 cr.  v/s Rs. 12 cr in June-10

· OPM grew by 323 bps Y-o-Y to 16.75%  v/s 13.52 % in June-10

· Net profit grew by 10 % Y-o-Y to Rs. 8.5 cr.  v/s Rs. 7.7 cr in June-10

· NPM grew by 87 bps Y-o-Y to 9.62 %  v/s 8.75 % in June-10

BOC INDIA Q1 FY12

OVERVIEW

BOC India (BOCI) is engaged in manufacturing of industrial gases and undertaking engineering projects. The company supplies more than 20,000 gases and mixtures - that makes steel plants more efficient, helps conserving environment, preservation of food, helping hospitals sustain lives and in general makes customers more productive. BOC India owns one of the Asia’s largest air separation units. The company owns more than 20 manufacturing units, 40 warehouses and depots, 100 dealers and more than 100 dedicated tankers in the distribution fleet. BOC India has signed 15 year gas supply agreement with Steel Authority of India (SAIL) Rourkela Steel Plant.

Key highlights:

· Total income  grew by 1% Y-o-Y to Rs. 250 cr. v/s Rs. 249 cr in June-10

· Operating Profit grew by 12% Y-o-Y to Rs. 53 cr.  v/s Rs. 48cr in June-10

· OPM grew by 306 bps Y-o-Y to 21.34%  v/s 18.28% in June-10

· Net profit grew by 11% Y-o-Y to Rs. 27 cr.  v/s Rs. 24 cr in June-10

· NPM grew by 151 bps Y-o-Y to 10.77%  v/s 9.26 % in June-10

BASF INDIA Q1 FY12

OVERVIEW

BASF India Ltd (BIL) is the flagship company of the Germany-based BASF group’s India operations. BASF is world’s leading company in chemical sector. BASF Group is a conglomerate that caters to various segments such as plastics, care chemicals, construction chemicals, petrochemicals, automotive and refinery chemicals, paper chemicals etc. BASF India has three manufacturing facilities located in Thane, Mangalore and Dadra.

Key highlights:

· Total income  grew by 53% Y-o-Y to Rs. 1016 cr. v/s Rs. 664 cr in June-10

· Operating Profit grew by 10% Y-o-Y to Rs. 91 cr.  v/s Rs. 83 cr in June-10

· OPM fell by 347 bps Y-o-Y to 8.99%  v/s 12.46% in June-10

· Net profit grew by 8% Y-o-Y to Rs. 53 cr.  v/s Rs. 49 cr in June-10

· NPM fell by 218 bps Y-o-Y to 5.18%  v/s 7.36 % in June-10

SUPREME PETROCHEM Q1 FY12

OVERVIE

Supreme Petrochem Ltd (SPL) is a joint venture between the Supreme Industries Ltd. and the Rajan Raheja Group. SPL is the leader in Polystyrene business in the Indian market place with a share of more than 50%. SPL is also the largest exporter of PS from India, exporting to over 80 countries around the globe. Currently SPL's exports are over 100,000 tonne per year. Supreme Petrochem owns and operates a state-of-the art Polystyrene facility, with an installed capacity of 2,72,000 TPA located at Nagothane in Raigad District. The facility also includes a world class colouring and compounding facility with an installed capacity of 17000 TPA.

Key highlights:

· Total income  grew by 11% Y-o-Y to Rs. 518 cr. v/s Rs. 466 cr in June-10

· Operating Profit grew by 34% Y-o-Y to Rs. 38 cr.  v/s Rs. 28 cr in June-10

· OPM grew by 127 bps Y-o-Y to 7.39%  v/s 6.12% in June-10

· Net profit grew by 56% Y-o-Y to Rs. 21 cr.  v/s Rs. 14 cr in June-10

· NPM grew by 119 bps Y-o-Y to 4.1%  v/s 2.91 % in June-10

Zydus Wellness: BUY: Focus on niche segments: GEPL

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Company Snapshot / Business Description RATING: BUY
• Zydus Wellness is a 73% subsidiary of Cadila Healthcare and a fast growing
player in the healthcare, wellness, cosmetics and nutrition segment.
• Company has well known brands like Sugar Free (Low Calorie Sweetener),
Nutralite (Low Fat Butter) and EverYuth (Skin Care range). It is the market
leader in sugar free sweetener and low fat butter.
• All the three brands are growing at a very healthy rate with Sugar Free
growing at more than 30% CAGR, EverYuth at more than 50% CAGR and
Nutralite at more than 30% CAGR.
• Company has a very strong distribution network with direct reach to 850+
towns and 50,000+ population.
Investment Rationale
• Focus on niche segments: Zydus is continuously focused on niche categories
and exploration of new concepts. It has forayed into virgin territories with
strong products; SugarFree(80% market share in sugar substitutes), EverYuth
(98% market share in peel-offs) and Nutralite (largest selling table spread).
Absence of competitors in its segment allows company to enjoy considerable
pricing power.
• Tax rate expected to go down from Q1FY12: The new facility at Sikkim,
expected to start in Q1FY12, is located in a tax free zone. It would bring
overall tax rate down to 17% from 34% currently, thereby translating into a
healthy bottomline growth.
• Strong and consistent financials: Zydus Wellness has shown consistent
improvement in profit margins and return ratios and has been a consistent
dividend payer. Zydus has minimal working capital as almost its entire
business works on advance collection terms. Over the last five years, net
sales and net profit have grown at 67% and 93% CAGR respectively.
• Zero debt company: Zydus is a zero debt company but has a huge cash
reserve of Rs.864.5 mn on its books. This gives it an opportunity to leverage
and expand its activities without stretching its balance sheet much. The cash
could also be used for synergetic acquisitions.
• Rapid product launches with differentiated offerings: Zydus rolled out
ActiLife (three variants), SugarFree Herbal and Nutralite Mayonnaise. To
engage consumers at various points of sugar consumption, company has
rolled out SugarFree drops (in addition to powder and pellets) as well as
SugarFree mint toffees. Also, it is test marketing Purify hand sanitizers, with
herbal properties.


Key Risks
• Company’s products being niche, run the risk of not getting accepted in the
market due to lack of awareness about the product or ineffective marketing.
• Two thirds of company’s sales come from its two products; namely, Sugar-
Free and Nutralite. These brands are likely to draw competitors’ attention
due to the opportunity they present, thereby resulting in price wars.
• Over the past one year, price of palm oil has risen by 50%. This is expected
to put pressure on margins of Nutralite as company is unable to pass on entire
cost to customers.
• Overall, revenues for the sector are going to get squeezed due to intense
competition from the two MNC giants – P&G and HUL and domestic player,
ITC; all of which are aggressively launching products at several price points
to gain market share.
Summary
• Over the past one year, Zydus Wellness has out-performed the major indices
returning 22.15% against 6.48% for the Sensex and 6.46% for the Nifty.
• With its slew of products released periodically, strong brands and USP of
health and wellness, Zydus Wellness is expected to grow well over the long
term.
• At the CMP of Rs.621, Zydus is available at P/E of 30.00 and 22.10 of its
FY12E and FY13E earnings respectively. This expensive valuation is justified
considering the niche segment it caters to.

Zydus Cadila Healthcare Acquires US Company - Angel Broking,

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Zydus Cadila Healthcare Acquires US Company
Zydus Pharmaceuticals USA Inc., through its subsidiary Zynesher Pharmaceuticals USA LLC
has entered into an agreement to acquire the assets of the US based pharmaceutical
company Nesher Pharmaceuticals Inc. Nesher operates as the generic subsidiary of KV
Pharmaceutical,based at St. Louis, Missouri, USA. The financial details of the agreement
are undisclosed.
Nesher has considerable expertise in niche therapies which have development or
production barriers, such as controlled release medications or DEA-controlled substances.
The broad-based assets purchase agreement includes assets and assumption of certain
liabilities, Nesher’s existing and pipeline ANDAs, certain manufacturing facilities and a full
fledged research and development lab. With this, Zydus will now be able to manufacture
and distribute generic controlled substances in the US market, which otherwise cannot be
imported. The market for controlled substances medications in the US is
estimated at US$7bn.
The acquired ANDA pipeline comprising 8 existing filings and 5 products under
development present a tremendous market potential as they belong to high growth, niche
segments which have a combined estimated market size of over US$2.1bn. The agreement
also encompasses supply and technical services agreements by which certain products of
KV Pharmaceutical will be manufactured by Zynesher Pharmaceuticals USA LLC. Overall,
we remain positive on the deal and maintain our Buy rating with a target price of `1,053.

Visit – Zydus Wellness -A niche wellness play �� Macquarie Research,

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MacVisit – Zydus Wellness
A niche wellness play
�� We highlight Zydus Wellness (ZYWL IN, NR) as a niche play in the rapidly
growing and under-penetrated wellness food category. Zydus has three
market leading brands – Sugar Free (low calorie sugar), low cholesterol table
spread Nutralite (butter replacement) and EverYuth (face wash). Zydus’ sales
and profit have grown 0.7x and 1.4x since FY09, backed by strong growth of
these brands.

Buy Zydus wellness 3QFY11 – Good act; Anand Rathi

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Zydus wellness
3QFY11 – Good act; reiterate Buy
Zydus Wellness reported a healthy 3QFY11, with revenue and
PAT growing ~21% and ~37% respectively yoy. We remain
positive on the company’s growth prospects and reiterate Buy.